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Unit 6: Investment
The consumption function may shift upward due to the following reasons: Notes
A reduction in the thriftiness of the people. Thriftiness refers to a decreased desire to save.
A fall in the rate of interest which reduces the reward for saving.
A fall in the rate of interest which induces people to buy now before prices rise.
An increase in the stock of wealth so as to make people feel that it is less urgent and
important to save in order to add to their stock of wealth.
In short, anything that increases (decreases) the desire to spend on consumption goods and
hence reduces (increases) the desire to save will cause an upward (downward) shift of the
consumption function and a corresponding upward (downward) shift of the aggregate expenditure
function.
Figure 6.10
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